Broker Willis Re has called on its clients and their counterparties to “accelerate the reinsurance calendar” as a response to the Covid-19 pandemic and to avoid any undue delays.
Willis Re has been relatively vocal over issues faced by brokers in servicing their clients since the global lockdown due to the Covid-19 coronavirus pandemic began, we understand.
Now, the company is advising that reinsurance renewal placements are brought to market as early as they can be, resulting in an acceleration of the reinsurance calendar, to ensure renewals are dealt with and placed in a timely manner.
For any company with a reinsurance placement due to incept over the coming months, Willis Re believes the reinsurance calendar should be accelerated.
“If possible, advance the placement cycle by one month; specifically accelerate data capture, the modelling and analysis phase, and the compilation of reinsurance submission and its distribution to reinsurers each by four weeks. This will cater for operational delays in the working from home environment that prevails and ensure adequate time to address any emerging market externalities,” the broker explained.
Which goes far enough to acknowledge that there are indeed some delays occurring, due to the enforced remote working the market finds itself dealing with.
“The point of the accelerated time frame is not only to compensate for delays in operational aspects but also to ensure that the engagement, presentation, price discovery and placement phases are all accelerated,” Willis Re continued.
In addition, Willis Re advises cedents don’t reduce their communications with counterparties just because they are working remotely, but continue to speak virtually as much as they would under normal working circumstances.
Cedents should also prepare to face significant questioning related to Covid-19, about their exposures, claims, processes and views on the loss activity seen so far.
While also remembering that there will be a specific focus on exclusions, wordings and terms or conditions at any renewals coming up over the coming months.
“From a treaty perspective, it is realistic to know that some classes will require COVID-19 and/or pandemic exclusions with reinsurers mostly aligned on this change. Buyers should consequently approach discussions well prepared around the exclusions being implemented on original business to ensure that treaty reinsurance best matches this,” Willis Re suggests.
This is all great advice and important for cedents to bear in mind as they approach the reinsurance and insurance-linked securities (ILS) markets looking for renewal support at this challenging time.
It’s also worth keeping in mind the pressures your counterparties may be facing that you are not.
So for ILS market’s this would mean cedents ensuring they are cognisant of the pressures faced due to the elevated nervousness of global institutional investors at this time.
But is accelerating the reinsurance calendar the real answer, if we’re heading for a world where a new new-normal is one with much less business travel and face-to-face time over a prolonged period?
Travel industry analysts expect that aviation activity will bounce back fastest in the leisure space, while business flying could take one to two years to resurge and even longer to get back to as frequent or regular as it was just prior to the outbreak of Covid-19.
A few years down the line, with much less travel and face-to-face meetings going on, it’s likely business travel volumes in general will naturally fall, as global companies find the savings made are significant, their remote-working contingencies are proving increasingly effective and so the need to travel going forward becomes much lower.
Which suggests that, rather than just bringing the submission date forwards, which certainly helps the perhaps-overloaded broking community, the real question that needs asking is whether the calendar is set to increasingly lose its relevance over the coming months?
Right now, reinsurance renewals follow a cycle, which has worked very well for an industry that has sometimes proven resistant to change.
But many are aware of the pressures this puts on underwriting teams, as well as brokers, plus on capacity at peak placement times of the year.
The renewals can be pinch points, where activity ramps up to levels that can cause their own issues. Yes most companies are adept at dealing with the congestion seen around renewals like January 1, April 1 and June or July 1, but might better spacing of renewals be better for everyone?
Electronic placement technology has helped to a degree. But, while the majority of placing platforms are at least digitalising decades old paperwork and processes, they are not really providing agile trading venues and so leave significant room for improvement.
For some, the enforced remote-working plus a recognition that transactional technology is still (in the main) insufficiently advanced in the reinsurance market, while brokers are advising them to advance the calendar (which let’s be honest, means stick to it for placements but give us more time to place your risks), might just feel that now is the time to break away from the calendar entirely.
Breaking the reinsurance calendar, in terms of breaking away from it and placing risks at points during the year that make more sense to the cedents and also the capital providers, while leveraging much more advanced technology to not just “place” risks, but to actively match them in the most optimal way with the most appropriate forms of capital, could result in a more efficient market all-around.
No other marketplace that involves the buying and selling of a commodity (such as risk), or matching of commodities to assets, ties itself to such a strict renewal calendar of activity.
In most financial markets that involve trading of any kind, you can trade at any point in the year and you’ll pay prices commensurate with the ambitions, motivations and efficiencies, based on market conditions, of the other side of the trade at whatever point that is.
Maybe it’s time for reinsurance to look more seriously at the example set by the catastrophe bond market here.
Yes, the catastrophe bond market still sees issuance bulking up around renewals, but the ILS market does tend to get its deals done “around” the renewal, rather than having such strict signing dates.
Placing your catastrophe bond early but have the reinsurance or retro coverage incept at June 1 is a regular occurrence and has been for years.
Some of the first cedents to begin bringing property catastrophe reinsurance programs to market early, in advance of the hurricane season, were the major sponsors of ILS and cat bonds, who had clearly felt the benefits of being out before the rush and before the brokers got too busy at any pinch-point times of the year.
But really, this shouldn’t even be about getting out early, or avoiding market congestion.
This should be about managing your risk portfolio in the best way for you as a cedent, secure in the knowledge that when you want to transfer some of that risk, reinsure or retrocede it, the market is open and there are technologically advanced ways to gain price discovery, and then place or trade it with the most appropriate and capital efficient counterparties.
The experience we all find ourselves in, of working from home and leveraging technology within our jobs more than ever, suggests that the reinsurance cycle needs to adapt to this new working reality.
Capital (weight of) almost broke the reinsurance cycle over the last decade or so. But the return of catastrophe losses showed it hadn’t broken it, but rather had changed it forever.
Now, enforced remote working and technology could be the driver of a permanent change to the reinsurance calendar as well.
Ultimately this could be good for everyone, removing pressure and overload at key times of year. It’s likely that a lot of activity would remain relatively tied to key renewal date inception, at least to begin due to the maturing and renewing of contracts.
But just a little more big-thinking around how best to turn the reinsurance market into one that trades more effectively and regularly, with liquidity and efficiency, might show us that right now is the time that the reinsurance calendar can be changed forever and for the better.
Of course, not everyone would want to change anything about the market calendar, as there are plenty of reasons not to as well.
But it does feel like the calendar has become more flexible over recent years, helped often by the desire to get out early to ensure capacity is available and at the desired prices.
Whether reinsurance could ever become a more actively traded marketplace, in terms of buying and selling, adding hedges and risk transfers in-line with portfolio changes remains to be seen.
But given the technologies now available to model and adapt portfolios of insurance risk in almost real-time, it seems logical to assume that the buying of protection and transfer of those risks will have to become much more fluid and frequent as a result.
Interesting times are ahead, as we believe the dislocation created by the current pandemic will drive an increasing move towards technology in the marketplace, with perhaps more focus on truly useful and transformative tech, rather than tech replacements for decade old market paradigms.
While some may say that the cycle has returned, we still believe its different and will never be the same.
So perhaps now is the time to adjust to that new reality and the even newer one that is now being carved out by the pandemic, matching the reinsurance renewal calendar to business and portfolio needs, rather than forcing cedents into following the same market structure that’s been in place forever.